PBO and Finance agree Canada’s finances on sustainable tack: report

Kevin Page and Jim Flaherty agree the federal government is on a sustainable fiscal path — they just have slightly different takes on how it got there.

The numbers aren’t identical, but Finance Canada’s projections in its first report on the federal government’s long-term fiscal sustainability ‘closely resemble’ those of the Parliamentary Budget Office — the PBO concluded in a report released Wednesday.

“Despite the challenges of slower GDP growth from a declining labour force and increased pressures on program spending from population ageing, PBO and Finance Canada both assess the federal fiscal structure to be sustainable over the long term,” the report says.

In other words, the federal government’s debt won’t grow faster than the economy.

While they both give a large share of the credit to the government’s decision in December 2011 to decrease the Canadian Health Transfer to the provinces and territories, they differ slightly on how much effect that move will have.

As a percentage of the total reduction, the PBO estimated the Canadian Health Transfer will account for 36 per cent — as compared to Finance’s 47 per cent estimate.

The PBO numbers, in contrast, show the government’s departmental spending reductions and freeze on operating expenses playing a bigger role — at 52 per cent to Finance’s 43 per cent.

The estimated effect of the OAS eligibility increase, at 12 and 10 per cent respectively, is much closer.

“The estimates of both PBO and Finance Canada suggest the federal fiscal structure became sustainable following the change to the CHT escalator,” the report says.

Overall, though, the PBO and Finance Canada differ on the extent to which the cuts will impact the federal government’s debt-to-GDP ratio looking ahead to 2050.

The PBO projects that the federal debt-to-GDP ratio — without the cuts — would have increased to 58.3 per cent in 2050.

Finance Canada, on the other hand, put it at 54.6 per cent.

What about the provinces?

Considering how much the federal government’s bottom line will benefit from the reduction in the Canadian Health Transfer, the PBO report also strongly recommends that provincial assessments be included to provide a more accurate picture.

“Periodic analysis of the collective sustainability of all levels of government is particularly important in the context of major changes to programs which interact with provincial budgetary responsibilities, such as recent changes to the CHT,” the report says.

“Given the federal government is not accountable for the fiscal situation of the provinces and territories, the Department will publish long-term fiscal analyses for the federal government on an annual basis,” the government’s response said.